Charter Communications lost 211,000 net residential video customers in the third quarter, during which it also brought on 7,000 small and medium business video subscribers.
The cable operator’s residential video subscriber base now stands around 14.64 million, shrinking 4.2% compared to the same time last year. The Q3 losses compare to a decline of 133,000 residential video subs in the third quarter of 2021. The most recent results are better than the 240,000 residential pay TV customers Charter lost in Q2.
Charter attributed the video losses to downgrades after rate increases in April as the operator passed higher programming expenses through to customers. Declines in video come as Charter continued to add broadband and wireless subscribers in Q3.
Third quarter video revenue was down 2.7% year over year to $4.37 billion, but growth in mobile, advertising sales and residential internet helped boost total Q3 revenue by 3.1% to $13.6 billion. Charter reported Q3 net income of $1.2 billion and Adjusted EBITDA of $5.4 billion.
The drop in video revenue was driven by a greater number of customers taking lower priced pay TV packages, alongside subscriber declines. Charter said this was partially offset by promotional rate step-ups, rate increases and higher bundled revenue allocation.
While Charter continues to lose video subscribers it’s shedding fewer than fellow cable operator Comcast, which reported Q3 results a day earlier including the loss of 540,000 net residential video customers.
Speaking on Friday’s earnings call, Charter COO Chris Winfrey – who in December is set to take over the chief executive role from long-time CEO Tom Rutledge – said that the biggest driver of cord-cutting is the high price of video related to programming costs.
Price “and the fact that we’re having to pass through programming rate increases, which still continue to be outsized even relative to inflation, means that customers have a difficulty affording it [video] even if it’s really something that they’d like to have,” Winfrey commented.
In Q3 video customer losses and a higher mix of lower-cost video packages drove programming costs down by $112 million, or 3.8% year over year, partially offset by programming contract rate increases and renewals.
However, while customers are cutting the cord, they’re not necessarily leaving Charter altogether.
Winfrey said the price is predominantly driving downgrades of pay TV packages, but not disconnects of broadband – meaning Charter’s maintaining the connectivity relationship. It’s also seeing mobile step in as pay TV declines.
“In many cases we disconnect the video customer, downgrade a video customer and sell them a mobile package at the same time,” said Rutledge.
This ends up saving customers money as they often take on a skinnier video package, or no longer pay for TV service at all – but ends up driving average revenue per user (ARPU) up as they buy mobile, according to Rutledge.
Like cable peer Comcast, Charter offers Spectrum Mobile service, operating as an MVNO with an agreement that allows customers to ride on Verizon’s wireless network. Cable has been making a name for itself in the wireless space and in Q3 Charter added 396,000 mobile lines.
Asked by analysts during the earnings call about potential risk for cord-cutting acceleration in the face of recessionary concerns, Rutledge said he wasn’t worried about a recession from Charter’s perspective as the company’ products “are really attractive even when consumers are under stress.”
“Video, I think, will be challenged, but on the other hand it’s a very attractive product if you’re unemployed. And it’s still, even at the high price that it is, a good value relative to other forms of entertainment,” he continued.
Also on the video front, Charter earlier this year formed a joint venture with Comcast to develop and build up a next-gen streaming platform for smart TVs and branded 4K streaming devices. The effort includes leveraging Comcast’s Flex aggregated streaming platform and hardware and free ad-supported streaming service Xumo, among other aspects. Charter’s initially contributing $900 million to the venture over multiple years.